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Tax Office Site Selection

Growing a tax office can necessitate a move. Your site selection is a critical decision process that can make the difference between success and failure. The target community must include enough taxpayers to provide the number of clients you need at a market share that you can reasonably attain in order to realize the required revenue for a successful office. Once you determine the market, the office location is the next crucial decision. A professional office building might be appropriate for an executive-level tax service, but, for a successful mass-market tax service, you may want to consider a retail storefront with high visibility. In this case, site selection involves many key considerations.

Drawing Area. In calculating the market size a center will serve, it’s critical to determine the area from which shoppers will be drawn. Population in the drawing area is a key factor, but the number of taxpayers who file returns is what really counts. On average, about one tax return is filed for every three people. If you need to add 1,000 clients in order to operate a profitable tax office, and you can easily attain a ten-percent market share, you’ll need to be in a center that will draw 10,000 taxpayers, or about 30,000 people. Rent will, of course, be commensurate with the number of shoppers each center draws. Ask your local chamber of commerce or small business development center for population and demographic profiles within a three-, five-, and ten-mile radius of most intersections.

Barriers. People will generally not cross barriers to go to a particular shopping center. A barrier could be physical or psychological. A physical barrier could be a river or a highway. A psychological barrier might be cultural or economic. Because of barriers, a shopping center may not draw all of the people who live within the drawing radius of the center. So, keep in mind that barriers will limit the drawing area and the population of shoppers that a center will attract.

Traffic. The number of cars and/or pedestrians is an indication or confirmation of the potential market served by a given shopping center. Ask your county or city government office for vehicle traffic counts for that area.

Visibility. Being in the right location won’t necessarily ensure success. Service, quality, and reputation is foremost. After that, good visibility is essential. If the store is hidden from the major flow of traffic in the center, it won’t realize its full potential. Also, if the visibility of the store front is not maximized with appropriate signage, the potential will be limited. Rental rates in a shopping center are directly related to the traffic and exposure to that traffic. Maximize signage, regardless of the cost, to take full advantage of that exposure.

Tax Office Lease Negotiation

Once you have identified a desirable office, lease negotiation is your next major challenge. There are many pitfalls you need to avoid when negotiating a lease. Economic considerations include rent and pass-through charges, security deposit, up-fitting cost, rent abatement, cost of utilities, repairs and maintenance, signage cost, and any other expenses the tenant must pay. Occupancy considerations include permitted use, sign privileges, required hours of operation, tenant rules and regulations, and other factors. Legal considerations include the lease term, options to renew, default provisions and the ability to cure, notice required to vacate, venue, casualty provisions, personal guarantee, right to subrent, and assignment rights. There are many leasing pitfalls, but there are strategies to counter these landmines. Here are just a few examples:

Escape Clause. The mistake of entering into a long-term lease for the wrong location could result in financial disaster for you. Unless the success of a new office is certain, request an “Escape Clause.” This provision allows you to cancel the lease in the event that you don’t realize a predetermined level of revenue during the first tax season to economically justify long-term occupancy. Even if you must pay a two-to-three-month penalty to the landlord as a lease termination fee, it would be a small price to pay compared to being locked into years of rent payments for an unprofitable office. In any case, obtain the right to subrent with the landlord’s approval, with the following condition added: “Such landlord approval shall not be unreasonably withheld or delayed.”

Use of Premises. Make a list of all potential uses (not just tax preparation) in the lease agreement. Add related products and services, such as bank products, e-filing, and tax planning, and include other products and services (e.g., financial products and services, mortgage brokering, insurance, etc.) that you might provide in the future. List any potential uses by a subtenant. Ideally, the use clause would be very broad, such as “all legal uses that would not conflict with the provisions of existing leases of other tenants in the center.”

Default Provisions. The lease agreement must make such provisions reasonable and feasible for you to adhere to. The landlord should not have the right to terminate the lease in the event of default without providing adequate notice (10 to 30 days) and allowing you the opportunity to cure the infraction and prevent lease termination.

Security Deposit. Landlords usually ask for at least one month’s rent. Security deposits tie up money that you could use as working capital, especially if you’re leasing multiple offices. Security deposits ensure that the landlord will be paid if a tenant skips out or leaves the premises in need of repairs upon termination of the lease. If you have a good reputation, a history of ethical business practices, prior references, and a stable, established business, ask the landlord to waive the security deposit. Or, ask that the deposit be refunded after a year or so of satisfactory tenancy. If the landlord won’t waive the deposit, perhaps he’ll agree to let you hold it in trust or put it in an interest-bearing CD. Otherwise, ask the landlord to pay interest on the money.

Casualties. For most leases, in the event of damage or destruction of the premises by fire or other casualty that causes the premises to be “untenantable,” the landlord has the option of rebuilding. During the time allowed to rebuild (usually three months or more), the landlord would not collect rent from you, but payments would resume after this period. If such a casualty occurred 30-60 days prior to or during tax season, you would need another location to operate during tax season. This could result in leases for two offices. Ask the landlord to grant an option for you to cancel the lease in the event a casualty results in you not being able to occupy the premises for more than 10-30 days during the tax season.

Chuck, a 40-year veteran tax industry executive, has managed hundreds of tax preparation offices in the U.S. and Brazil. He earned his B.S. degree in management (summa cum laude) from Adelphi University and Executive M.B.A. degree from Pace University, where he also completed doctoral studies in business. He is founder and President of Peoples Income Tax, Inc., which operates 18 tax preparation offices in central-Virginia and licenses income tax school and tax practice management systems to independent tax firms nationwide.

Chuck is involved in numerous community and small business advocacy activities. He is co-author of two books on career education for adults and numerous articles on adult education, income tax and management. He has taught small business management as an adjunct faculty member of Virginia Commonwealth University.

Legal Advice

The information, ideas and suggestions contained in this section deal with the management of legal issues and are not to be construed as legal advice. The author is not an attorney and is not qualified to provide legal advice. The author and the publisher, Peoples Income Tax, Inc., assume no responsibility for decisions made by readers of this article based on information contained herein, or for omissions of information. You should seek the advice of a qualified attorney to provide information or answer any questions you may have that involve the law and/or legal issues.

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